For many, fintech is just the buzzword du jour. Not that it is unimportant; it is just that it gets tossed around so frequently that it is hard to know what is meant by it.
A word or phrase becomes hot and everyone regurgitates it even without knowing precisely what they mean by it. Given the modern world of trading, financial technology is as broad a phrase as we can think of. Every aspect of markets and trading is powered by technology so everything we touch and write about can technically come under fintech.
To be fair, what is often meant by fintech is new, disruptive technology. Our markets have been in the midst of constant disruption this century, starting with the transition to electronic trading and following on its heels, the speed and latency arms race. So we surveyed 50 leaders in the fintech space to get their take on what to expect next (see “10 key questions for 50 fintech disruptors,” page 16).
The most popular topic during the Futures Industry Association conference in Boca Raton, Fla., this March was blockchain and the potential of distributed ledger technology, which is what blockchain is. It was suggested to me by the head of a fintech firm attending the event that the ultimate evolution of blockchain could replace exchanges and clearing houses. When asked about this potential outcome, exchange leaders dismissed this. In fact, the head of another fintech firm came out of his way to tell me why the question was not valid and just the result of the misunderstood blockchain hype. It is interesting that it stirred such contention. Distributed ledger technology is basically a way to connect people and systems together in a secure system. One panel featured the question: Is blockchain the next iPhone or Segway?
Blythe Masters, CEO of Digital Asset Holdings, presented a positive view on the deployment of blockchain at the event, and her firm has made a sizable investment into the space based on that view. The fact is no one knows how this will play out — iPhone or Segway — which is perhaps why it is a matter of concern. Remember, it was not so long ago that blockchain was just a tool to enable the trading of bitcoin, but at the FIA, blockchain was referenced 10 times for every one reference to bitcoin. In “A postcard from blockchain’s bleeding edge” (page 30), Contributing Editor Steve Lord provides an update on a key blockchain innovator.
Speaking of buzzwords, the one that jumped out during the Boca event was “regtech,” short for regulation technology, an offshoot of fintech aimed at providing risk management and compliance tools to match new regulatory mandates. It is odd that an event that used to be dominated by exchanges and brokers seemed to focus on start-ups aiming to solve compliance requirements.
Perhaps that is why the highlight of the event was Commodity Futures Trading Commission Acting Chairman Chris Giancarlo’s address. Giancarlo said that after traveling across the country he got the impression that, “everyday Americans believe that Washington politicians and bureaucrats have gotten in the way of their ability to earn a living. They want the burdens removed so that they can build their dreams again.”
He laid out a three-point agenda to: Foster economic growth, enhance U.S. financial markets and right-size its regulatory footprint. The key takeaway from his address is that the era of heavy regulatory burdens and excessive rules and fines was coming to an end. He received a lengthy standing ovation. It is certainly more inspiring that talking about regtech.
When discussing fintech, what seems to matter is what is new and disruptive. It has become a phrase that is a harbinger of change. Sometimes it is not so much about the technology, but the way innovators are ordering it. We talk to two firms that are building quantitative money management businesses by crowdsourcing quantitative programming talent in “The quants take on fintech,” page 24. Quantiacs and Quantopian are providing the tools for thousands of aspiring quants from around the world to build trading models in the hope to find strategies to build a trading business around.
They are off to an impressive start, but what makes them unique is not necessarily their technology. It is how they are looking to build a money management business a different way. Technological advances opened up the ability for more people to research quantitative methods and build systems, but it is the ability to look at the world differently that is truly disruptive.